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10 years of pension auto-enrolment – have the reforms worked?

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Written by: Emma Lunn
30/09/2022
UK employees have now been auto-enrolled in workplace pension schemes for a decade, since 1 October 2012, boosting their retirement savings.

But as the 10-year anniversary of auto-enrolment on 1 October approaches, experts have raised concerns that the cost-of-living crisis could mean a surge in people opting out.

Auto-enrolment is a government initiative whereby an employee who meets certain requirements is made a member of their workplace pension scheme.

According to The Pensions Regulator, more than 10.7 million employees have been auto-enrolled. Minimum contributions started at 2% before being upped to 5%, and now stand at 8%.

The past decade has seen much discussion about how to move auto-enrolment forward and boost contributions, with the minimum age potentially being lowered from 22 to 18.

A success story so far

Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, described the first decade of auto-enrolment as “an enormous success”.

“Well over 10 million people have been brought into workplace pensions and are building a retirement income that will help them be financially resilient in later life,” she said.

“In the run-up to auto-enrolment there were concerns that as many as one in three people could opt out of the scheme. However, such predictions have proved to be unfounded with opt-out rates consistently around 10%, even when minimum contributions were hiked.”

Aegon research revealed that nearly three quarters (73%) of those who have been auto-enrolled feel positive about the fact that money is coming off their salary, allowing them to save for the future.

A high proportion (76%) of those surveyed acknowledged that saving for later life is important with just under half (47%) agreeing that they feel more positive about retirement as a result of being auto-enrolled into a workplace pension.

Will the cost-of-living crisis threaten contributions?

The government has been under pressure to announce a timetable for implementation of the 2017 Auto-enrolment Review which includes lowering the minimum age for enrolment from 22 to 18.

But pensions minister Guy Opperman has since been let go from the cabinet since Liz Truss became Prime Minister, with his successor not yet announced.

Whoever takes over the role could find that auto-enrolment enhancement could be kicked into the long grass. They will also need to decide whether now is the right time to expand auto-enrolment as workers grapple with the cost-of-living crisis. Hiking contribution rates when many workers are struggling to pay bills could leave many in real financial difficulty.

A study by AJ Bell found that more than a third (34%) of eligible employees surveyed said they have either already opted out or are considering opting out of auto-enrolment.

More than one-in-10 (12%) of those who have opted out were not aware they would lose their employer contribution as a result.

Tom Selby, head of retirement policy at AJ Bell, said: “Anyone thinking about quitting their workplace pension scheme during the cost-of-living crisis should ensure they have considered all other options before doing so.

“Opting out of auto-enrolment means you miss out not just on tax relief and tax-free investment growth, but also your matched employer contribution. By leaving your workplace scheme, you are therefore, in effect, taking a voluntary pay cut. Our research suggests around one-in-10 (88%) of those who have opted out are not aware that in doing so they are missing out on an employer contribution.

“If you really feel you have no choice but to quit your workplace pension, make sure you have a plan to re-join as soon as you can afford to.”

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